Coyne: Poloz likely fine choice, but selection too veiled

Andrew Coyne

Some days it really does seem as if we live in some duchy in a forgotten part of Europe, ruled by archdukes and grand viziers. So once again we awake to find a position of immense importance, with the power to affect all of our lives, is to be filled by someone we know next to nothing about, for reasons no one will say, by a process that seems as arbitrary as it is opaque.

I don’t doubt for a moment that Stephen Poloz is qualified to be the governor of the Bank of Canada: Among other credentials, he was at one time the head of research at the central bank. But was he the best candidate? Who can say? A lot of people thought the senior deputy governor, Tiff Macklem, was the best qualified, having both longer and more recent experience in monetary policy — Poloz last worked at the Bank of Canada 14 years ago — and having been a key player in the successful international response to the 2008 financial crisis.

It would seem pertinent to ask, then, why Poloz was chosen over Macklem. In what specific ways was Macklem deemed deficient? What personal qualities or professional experience did Poloz bring to the table that were considered more relevant? What views does he hold on the broad questions of monetary policy, and how, if at all, do they differ from Macklem’s? The simple answer is, we don’t know, if by “we” you mean anyone outside the PMO and the small circle of advisers around the Finance Minister.

Certainly the governor designate’s first press conference did little to enlighten us, while the explanations floated in the press are probably guesses and, if true, quite bizarre: that Macklem too visibly coveted the job, say, or came off as too much the Ottawa mandarin. We are choosing a central banker, here, not a homecoming king, and yet what scraps of information we are provided are not only vague and unhelpful — a raft of quotes from colleagues vouching for him as “an everyday guy” and such — but, more important, after the fact.

In the absence of real information, speculation and rumour fill the void. Was Macklem the victim of guilt by association, made to pay for his predecessor’s very ill-judged dalliance with the Liberal party? Was Poloz considered more “one of us,” more willing, as my National Post colleague John Ivison suggests, “to accommodate the government’s agenda,” whatever that is? Would he be less hawkish on inflation, more reluctant to raise interest rates — or the reverse?

Poloz’s record does not tell us much: though he was at the central bank at the time the policy of inflation targeting was adopted, much has happened in the field of monetary policy since then — to say the least. (See the outgoing governor’s recent Eric Hanson Lecture for a full discussion.) In the past few years he has said little and written less on monetary policy — appropriately enough, given his position as president of Export Development Canada. I don’t say we know a great deal more about Macklem’s views, but in a mature democracy we would have the chance to quiz one or both of them in advance, perhaps through confirmation hearings.

But this is Canada, so instead it is left to whatever whims and urges haunt the Finance Minister’s mind. This is a particularly troubling development. Traditionally, and officially, the governor is chosen by the central bank’s board of directors, whose selection is then submitted for the Finance Minister’s approval. Of late, and most blatantly in the current round, the process has been telescoped, the choice effectively reduced to the minister’s personal prerogative.

The impression, if not the reality, is of a central bank being slowly absorbed into the Finance department, a process that arguably began with the failure to reappoint John Crow, and continued with the appointment of David Dodge, Paul Martin’s deputy at Finance, and of Mark Carney, also out of Finance. It is no slur on the abilities or integrity of either man to say that the signal sent was hardly one calculated to enhance the bank’s reputation for independence.

Poloz, likewise, may prove every bit as capable as his predecessors, but his years at the EDC, an organization that dispenses government-backed loans to supplicant exporters, hardly serve as a recommendation — to say nothing of his involvement in the auto bailout. Much of a central banker’s job is to say no to the business lobby’s perennial demands for cheap credit. Much of Poloz’s career has been spent doing the opposite.

Most disturbing of all is the suggestion that Poloz might be more willing to intervene in foreign exchange markets to force the dollar down, or at least slow its rise. Along with inflation targeting, the policy of not targeting the exchange rate, but allowing it to find its own level, is one of the great Canadian policy success stories of recent decades. It is what has spared us, for example, from the kind of torments Europe has periodically endured, under first fixed exchange rates and then the single currency. It would be catastrophic to abandon it.

I’m not saying he would. But even to hear it suggested is a potential source of concern. Central banking depends crucially on credibility — on economic actors a) understanding what a bank’s policy is and b) believing it will carry it out. That credibility is linked to its independence, and both are buttressed by transparency. Everything in modern monetary policy is geared toward sharing information with the public, to ensure the central bank’s intentions are clear and there are no unpleasant surprises. Everything about the current appointment process runs against that.